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Why ConocoPhillips Stock Plummeted in the First Half of 2020

By John Bromels – Updated Jul 10, 2020 at 8:54AM

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Black gold lost its luster in March.

What happened

Shares of ConocoPhillips (COP 7.46%), the largest U.S. independent oil and gas exploration and production company, plunged 35.4% in the first six months of 2020, according to data provided by S&P Global Market Intelligence. That severely underperformed the S&P 500, which was down just 4% over the same period. The poor performance brought Conoco's share price to essentially the same level as it was ten years ago. 

So what

Like most oil drillers, when the price of oil goes up, Conoco's share price improves. When the price of oil goes down, Conoco's stock suffers. And oil prices went way down in early March, after the OPEC+ alliance -- in particular, Saudi Arabia and Russia -- failed to come to an agreement on production curtailments.

A frowning man watches an oil drum spilling oil on the ground.

Image source: Getty Images.

That sparked an oil price war between the two countries, which flooded the global market with cheap crude. Oil prices were cut in half, and investors sold off oil stocks. Unlike many other oil producers, Conoco hasn't cut its dividend, which currently yields about 3.7%. It did, however, join the vast majority of its peers in cutting its 2020 capital expenditures and production levels.

Eventually, Saudi Arabia and Russia, along with the rest of OPEC+, agreed to once again limit production (at least for now), and oil prices rose again somewhat. Of course, coronavirus-related travel restrictions have kept demand down, leading to concerns about an oil storage shortage. Right now, U.S. benchmark WTI Crude is trading just under $40 a barrel, down from more than $50 a barrel in February. 

Now what

Although ConocoPhillips is one of the stronger players in the oil industry, there's too much uncertainty right now in the oil and gas markets to recommend buying in. Depending on how the coronavirus pandemic plays out and how OPEC+ proceeds with production cuts, oil prices could be just about anywhere by the end of the year. 

For now, though, Conoco won't be able to squeeze much of a profit (if any) out of $40 per barrel oil. Investors should steer clear of the entire oil industry.

John Bromels has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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